BIK Breakfast Meeting March 3, 2017
Ambassador Dr. Vincent O’Neill formally opened the first BIK Breakfast meeting in 2017. Held at the Capitol Club, the meeting theme was “Challenges to and progress being made in the doing business environment in Kenya.”
The Ambassador highlighted key achievements made by BIK in 2016, including a thematic focus in meetings, diversification of the membership, publication of the Doing Business Guide, a Ministerial visit in December, greater collaboration with the EU chambers of commerce and a stronger social media presence. He noted that two new members had been elected to the BIK Steering Committee: Kate Kiguru and Lisa Källbäck.
Plans for the new year include continuing with the thematic focus of breakfast meetings, commissioning market research studies, planning for BIK social events and more collaboration with Enterprise Ireland, with an agreement on a trade representative already underway and the appointment of a commercial attaché at the Embassy of Ireland in Nairobi.
BIK, in cooperation with the Embassy, is organising an outward visit to Ireland with a focus on education opportunities in Ireland. The Ambassador noted that BIK would be engaged in the Ministerial-led trade mission later in 2017. This year, the Embassy is planning to deepen regional cooperation with Embassies in Dar es Salaam, Kampala and Addis Ababa.
The Ambassador mentioned that St. Patrick’s Day, the national Day of Ireland, is scheduled to happen on March 17, with the Greening event taking place on March 14.
Irish Economy Update
He noted that growth of the Irish economy remains strong (estimated at between 3-4 percent this year), with increasing domestic demand outpacing increased export growth. Unemployment continues to decrease and the budget deficit is now below 1 percent GDP, having been over 32% just five years ago. Genuine concerns to the Irish economy included Brexit, the Trump presidency and the EU rulings on taxation.
Ambassador O’Neill noted the 4 priorities of the Irish government in the ongoing EU negotiations:
- Protect the Northern Ireland peace process.
- Maintain the Common Travel Area between the UK and Ireland.
- Minimize the impact on Ireland’s economy (diversifying markets).
- Support but influence the future shape of the European Union.
Chris Hockey, Warrior Insight
Chris Hockey gave a security briefing focusing on four areas of concern:
- He noted that it was too early to predict security implications of the upcoming elections. Expectations are that any potential election related issues or conflict would be more focused at local, sub county border areas that at the national level.
- The current drought and food insecurity is affecting security, driven by underlining ethnic tensions.
- Terrorism activity continues along the border with increasing attacks on communications towers.
- Crime was noted to have increased in terms of home and office invasions, which in January surpassed street crime for the first time in some years. The government hads stepped up efforts to curb criminal gangs, especially in Nairobi and Mombasa.
Coutts Otolo, CEO, Parker Randall Eastern Africa
Coutts Otolo of Parker Randall Eastern Africa, offered members the perspective of a leading consulting company with a good understanding of the Kenyan context. He noted the following considerations as the country was gearing up for elections:
- The current inflation rate of 6 percent is expected to rise to about 10 percent in 2017 based on current food shortages and election activity.
- The exchange rate stands at 102 KES/USD. Volatility is expected around the election, projected to push the rate to 110 KES/USD.
- Kenya’s expected growth rate, reported by the government, is 6 percent. Other commentators, however, have put the figure at 4 percent.
- Decreased lending to the private sector, with the 14 percent interest rate cap on banks, has resulted in a struggling SME sector.
- Remittances were noted as the largest forex earner for Kenya at USD $1.7 billion per annum. There are concerns about future remittances due to Brexit and the Trump administration in the United States.
- Public debt stands at 55 percent of GDP, mostly due to China to fund large infrastructure projects. Coutts noted that this debt had not been a stimulus to the growth of the Kenyan economy.
- Tax rates fell below sufficient levels to fund debt (15 percent versus the required 40 percent), and no political party will push to increase tax rates in an election year. There was additional pressure on county governments (devolved system of governance) to generate tax revenues outside of the standard tax system.
- Key challenges need to be addressed sooner than later: runaway corruption, public debt and credit to private sector.
Ahmed Farah, Country Director Kenya, TradeMark East Africa (TMEA)
Ahmed Farah from TradeMark East Africa outlined the perspective of an organization working to improve physical access to markets, address bottlenecks to a good trading environment and improve business competitiveness.
- High business costs in importing and exporting a container in Kenya with an average figure of USD $2,000 per container. South Africa and Tanzania stood comparatively at USD $1,500 and $1,300.
- Border congestions coupled with an infrastructure deficit near the borders is affecting the costs of doing business in the region.
- TMEA in its target results has managed to reduce the time to cross select borders by 30 percent; increase the value of exports from the EAC region by 10 percent; reduce the average time to transport a container from Mombasa/Dar es Salaam ports to Rwanda/ Burundi by 15 percent; and increase by 25 percent intra-regional exports compared with total exports from East Africa.
Challenges notwithstanding, Kenya was ranked the third most improved country globally on overall improvements in the business environment in the World Bank’s Ease of Doing Business Report 2017.
Top business environment obstacles highlighted by the TMEA included weak institutions and fiduciary risks (i.e. corruption, tender irregularities, conflict and civil unrest in South Sudan, Burundi, DRC, political instability and access to finance and land).
Tony Wood, Managing Director, ION Kenya
Tony Wood of ION Equity Kenya, an investor company in private businesses, gave an outline of the MyDawa app, a technology-based service that enables consumers to purchase authentic, high-quality medicines and health and wellness products. He noted that ION Kenya had chosen to roll out MyDawa in Kenya due to the robust mobile penetration and growing smartphone usage, innovation in Fintech and e-payment systems, and a healthy growing ecosystem of skilled labor, especially tech developers.
He noted key challenges in Kenya’s business environment:
- Regulation in the digital age in Kenya is still lagging behind the pace of innovation being witnessed in the country.
- There is an increasing culture of tolerance to corruption. This is negatively affecting the image of the country as an investment destination.
- Communication, traffic and Kenyan-timing are cultural peculiarities that making doing business an uphill task.
Steve Felder, Managing Director – Eastern Africa, Maersk Line
Seventy percent of Maersk Line’s container traffic is imports to East Africa. The trend continues to be exporting raw materials and importing finished goods.
Felder described positive infrastructural improvements in Mombasa Port – including the second container tunnel and improved ICT. Productivity at the port, however, remains low compared to international standards.
Train freight is also low in East Africa – about 3 percent of imports are moved by train in Kenya compared to 70 percent in Europe and 30 percent in South Africa. With the commissioning of the new Standard Gauge Railway (SGR) in Kenya, the target is set to increase to 30 percent freight movement. In reality, this will take time and the expectation is that heavy freight will be moved on train as it is more economical. Tracking companies will also push against rail use as they see their market share reduce.
State subsidies are expected to support the SGR in reaching its potential, as the SGR has significant political importance in the election year.
In his closing remarks, Ambassador O’Neill indicated plans to create a forum or platform outside of the BIK quarterly breakfast meetings to discuss and explore social impact achievements of commercial businesses.
The next BIK meeting will be held on May 5 from 7:30am to 9:30am at the Capital Club. The theme of the meeting will be Agri-Tech.